The Committee shall assist the Board in fulfilling its responsibilities relating to:

B. Terms of Reference of the Audit Committee The Committee shall assist the Board in fulfilling its responsibilities relating to: (1) the integrity of the Bank's financial statements and its accounting, financial reporting and disclosure policies and practices; (2) the soundness of the Bank's systems of internal controls which management has established regarding finance and accounting matters and their effective implementation; (3) the status, the ability to perform duties independently and the performance of the Bank's compliance, internal audit, evaluation and risk management functions; (4) the independence, qualifications and performance of the Bank's external auditor; (5) any other responsibilities as described in the Annex to these terms of reference or that the Board may assign to the Committee from time to time. In fulfilling its responsibilities, the Committee shall have the rights and duties, and follow the principles and guidelines, contained in the provisions set out below. 1. Oversee the integrity of the Bank's financial statements and its accounting, financial reporting and disclosure policies and practices. 1.1 The Committee shall meet with both the external auditor and financial management of the Bank to review the scope of the proposed audit for the current year and the audit procedures to be utilized, and at the conclusion thereof, review such audit, including any comments or recommendations of the external auditor. The Committee shall also review and discuss with them any significant events and transactions that may occur during the year. 1.2 The Committee shall review with the external auditor and management material accounting and financial reporting policies, practices and procedures used by the Bank as well as material, alternative treatments of financial information as permitted by IFRS that have been discussed with the management of the Bank including ramifications of such alternative treatments and the proper disclosure thereof, as well as any treatment of such financial information that may have been suggested by the external auditors. These reviews shall include changes in important accounting principles and policies and their application. 1.3 The Committee shall review and discuss both with management and the external auditor audited annual financial statements and other key financial disclosures prior to their release, and shall discuss with the external auditor its views or judgments on the integrity of such statements and reports. 1

1.4 The Committee shall review, at least annually, with the Bank s General Counsel significant pending litigation that may have a material impact on the Bank s financial condition or reputation. Notwithstanding the foregoing, the Committee shall be informed of any significant litigation on a timely basis. 2. Oversee the soundness of the Bank's systems of internal controls which management has established regarding finance and accounting matters and their effective implementation. 2.1 In the areas under its responsibility, the Committee shall assist the Board of Directors in fulfilling its oversight responsibilities relating to the Bank s compliance with the provisions of the Agreement Establishing the European Bank for Reconstruction and Development, the Bank s policies and procedures, as well as any legal requirements. 2.2 At least annually, the Committee shall review, with the external auditors and management, the adequacy and effectiveness of the Bank s accounting, financial and other internal controls that management has established regarding finance and accounting matters, including the resolution of identified material weaknesses, if any. The Committee shall review any recommendations and management s proposals, including their accompanying timetables, to remove deficiencies and to improve or establish controls in this area. In particular, the Committee shall assess whether such internal controls are adequate for the purpose of timely identifying or uncovering any material compliance failure that could adversely affect the Bank s financial condition or reputation. 2.3 The Committee shall be entitled to ask for and receive periodic reports from the Head of Internal Audit on any significant deficiencies in the design or operation of internal controls and the adequacy of such controls for the purpose of identifying or uncovering any material compliance failure that could adversely affect the Bank s financial condition or reputation. It shall discuss with management, including the Chief Compliance Officer, appropriate ways to address these deficiencies and systematically review management's follow up. 2.4 The Committee shall annually review with management and the external auditor the basis for disclosures made in the Annual Report regarding the control environment of the Bank. Such reviews shall include the external auditor s views on the competence level and adequacy of training of Bank personnel responsible for accounting, financial reporting and internal auditing. 2.5 The Committee shall periodically review the measures taken by the Bank to establish and maintain procedures for (i) the receipt, retention and treatment of complaints received by the Bank from any source, either internally or externally, in connection with any accounting, internal accounting controls, or auditing matters, and (ii) the submission by employees of the Bank, on a confidential and anonymous basis, of communications that involves any employee concerns regarding questionable accounting or auditing matters. 2

3. Oversee the status, the ability to perform duties independently and the performance of the Bank's compliance, internal audit, evaluation and risk management functions. 3.1 The Committee shall periodically review and evaluate the functions performed by the Internal Audit Department, Office of the Chief Compliance Officer, Evaluation Department and Risk Management Department (hereafter called "the Functions"). In such reviews, the Committee shall assess whether the Functions (a) have a role that is appropriate for the Bank s purpose and needs, (b) have policies, procedures, methodologies, budgets and staffing resources that are adequate to perform their role and (c) perform according to expectations. The Committee shall also assess whether each Function has the ability to perform its duties independently from the departments, units or staff members over whom it exercises an oversight or review responsibility and that the head of each Function (including the Vice President, Risk Management, where the risk management function is concerned) has the ability to express opinions independently from other members of management. 3.2 The Committee shall review the Work Programme reports of the Evaluation Department when submitted in accordance with the Evaluation Policy and shall review annually the proposed scope of the work plans of the Functions for the coming year and the process to develop the plan. The Committee shall also review any significant findings of the Functions and management s responses to such findings. The Committee shall discuss and review follow up action by management to address key issues related to these findings. 3.3 The Committee shall regularly meet with the head of each Function (including the Vice President, Risk Management where the risk management function is concerned) without other members of management being present. 3.4 The Committee shall be consulted prior to the engagement of the Head of Internal Audit Department and the Chief Compliance Officer. The Committee shall promptly report its views on the matter to the Board. The President shall take the decision to remove the Head of Internal Audit Department or the Chief Compliance Officer in accordance with the guidance given by the Board in an Executive Session. Any decision to remove the Chief Evaluator for cause shall be subject to approval by the Board and such decision shall be made on the basis of a Report prepared by the Audit Committee to be transmitted by the President to the Board. In the transmittal document, the President may express his disagreement with the course of action recommended by the Audit Committee. 3.5 The Members of the Audit Committee, together with the Vice President Human Resources, and the Chair of the Board Steering Group, will act as the Selection Committee for the recruitment of the Chief Evaluator and will make a recommendation to the President for decision by the Board for the engagement of the Chief Evaluator, without prejudice to the role of the BAAC. 3.6 The Audit Committee shall be consulted on the employment contract and remuneration of the Chief Evaluator, without prejudice to the role of the BAAC. 3

4. Oversee the independence, qualifications and performance of the Bank's external auditor. 4.1 The Committee shall periodically review, and make appropriate recommendations to the Board on, policies regarding the role and activities of the external auditor, including the provision of non audit services. In the context of such reviews, the Committee shall satisfy itself as to the qualifications, independence and performance of the Bank s external auditor, who is ultimately accountable to the shareholders of the Bank. The Committee shall appoint one of its members to join, as an observer, any selection panel that is tasked with the identification and selection of the Bank s external auditor. 4.2 The Committee shall consider the President's proposal for the appointment and compensation of the external auditor (which proposal shall include the draft letter of engagement) and may make appropriate recommendations to the Board before the Board decides on the matter. The letter of engagement shall specify that, in the discharge of their professional responsibility to the Bank, the external auditor (a) shall communicate with the President and the Board, (b) shall, when requested by the Committee s Chairman, attend any meeting of the Committee for the purpose of answering questions and giving explanations to the Committee, and (c) shall bring, without delay, to the attention of the President and the Committee any matter or issue which, in their opinion, ought to be given immediate consideration by the President and the Board. The Committee shall also consider the President's proposal for the removal of the external auditor, if necessary, and shall make appropriate recommendations to the Board before the Board decides on the matter. 4.3 The Committee shall, as often as it deems necessary, meet with the external auditor without management being present. 4.4 The Committee shall participate in the discussion and the resolution of any disagreements between the management and the external auditors. 5. Other duties and responsibilities 5.1 In the areas under its responsibility, the Committee may make appropriate recommendations for the continuous improvement of and adherence to the Bank s policies, procedures and practices at all levels. 5.2 The Committee shall periodically oversee the systems, methods and results of contracting for goods, services and consultancy in technical assistance and operations including, for example, an annual review of purchasing, procurement and engagement of consultants reports. 5.3 Consistent with its oversight function and subject to the powers of other bodies and officers under Bank s procedures for specific investigations (e.g., Procedures for Reporting and Investigating Suspected Misconduct, Terms of Reference of the Procurement and Contracting Committee, Disciplinary Procedures, Grievance and Appeals Procedures, Rules of Procedures of the Project Complaint Mechanism, etc.), the Committee may require investigations into any matters within the Committee s responsibilities. The terms of reference of, and budget 4

for, such investigations shall be discussed with management and shall be submitted to the Board for approval. Investigations to be carried out by the Evaluation Department shall be deemed to be material changes to the Evaluation Department s Work Programme and dealt with accordingly. 5.4 The Committee shall be entitled to obtain advice and assistance from an outside expert. The Board shall appoint the outside expert upon the recommendation of the Committee. For this, resources shall be made available to the Committee in the framework of the Bank s budget. 5.5 The Committee shall perform any other activities consistent with these Terms of Reference and the Bank s governing documents, as the Board or the Committee deems necessary or desirable. 5

C. Terms of Reference of the Budget and Administrative Affairs Committee The Committee shall assist the Board of Directors in fulfilling its responsibilities in relation to the following: (1) Ensure that the budgetary, staff and administrative resources of the Bank are directed towards its agreed priorities; (2) Monitor efficiency, cost control and budgetary prudence; (3) Oversee the Shareholder Special Fund, the uses of Donor funding and relations with the Donor Community (4) Oversee the Bank s Human Resources policies; (5) Fulfill specific responsibilities in relation to Governors, the President, Vice Presidents and Directors of the Bank; (6) Oversee policies relating to governance and ethics; (7) Supervise the Bank s administrative arrangements; (8) Discharge other responsibilities within its remit. In fulfilling its responsibilities, the Committee shall have the rights and duties, and follow the principles and guidelines, contained in the provisions set out below. 1. Ensure that the budgetary, staff and administrative resources of the Bank are directed towards its agreed priorities 1.1 The Committee shall review the Medium Term Resource Framework and its updates. 1.2 The Committee shall discuss, early in the business planning cycle, in the context of annual medium-term strategy updates, key issues guiding the preparation of the Annual Budget and Business Plan. 1.3 The Committee shall review the Annual Budget and Business Plan proposals. 1.4 As requested by the Board of Directors, or management, or on its own initiative, the Committee shall consider and make recommendations regarding any issues and policies with significant budget impact. 2. Monitor efficiency, cost control and budgetary prudence 2.1 The Committee shall review and monitor periodic reports on Institutional Performance, including: transition impact; operational performance; organisational performance; and, administrative and capital expenditure. 6

2.2 The Committee shall review instruments for the measurement of corporate performance, such as the EBRD scorecard, the framework for performance reporting, and principles of planning and budgeting. 3. Oversee the Shareholder Special Fund, the uses of Donor funding and relations with the Donor Community 3.1 The Committee shall review the annual Work Plan of the Shareholder Special Fund prior to Board approval. Thereafter, the Committee shall discuss the Semi Annual Report on Grant Co-financing, which includes an update on the implementation of the Work Plan. 3.2 The Committee shall review proposals which involve non-tc funds (investment grants, incentive payments, lending, guarantee or investment operations) and any specific questions that might arise relating to non-tc funds as foreseen in the Rules of the Shareholder Special Fund, except for proposals which are cofinanced by multi-donor funds administered by the Bank. 3.3 When appropriate, the Committee shall also meet to review requests for grant financing where timing is a factor, or for an early warning about unusual projects. 3.4 The Committee shall provide guidance to Management regarding issues of governance of the Shareholder Special Fund, including requests for modifications to the Rules of the Fund or changes in administrative arrangements or structures. 3.5 The Committee shall review the the Annual Donor Report. 3.6 The Committee shall, in the context of donor funding, consider as appropriate issues arising from the EBRD s co-operation with other IFIs. 3.7 The Committee shall consider and provide guidance on operational initiatives underpinned by technical cooperation such as the Turn-around Management and Business Advisory Services (TAM/BAS) programmes. The Committee shall review the TAM/BAS Strategic and Operational Plan, while respecting the policy responsibilities of the FOPC. 38. The Committee shall review the operational performance of the Bank s policies and procedures on technical co-operation as appropriate, while respecting the policy responsibilities of the FOPC. 7

4. Oversee the Bank s Human Resources policies 4.1 The Committee shall periodically review the Bank's Human Resources policies, including such issues as: staff recruitment criteria; staff development; performance evaluation and promotion criteria; gender equality; and work-life balance. This shall also include staff compensation and benefits programmes as prescribed in Section 7 of the Staff Regulations 1. 4.2 The Committee shall discuss, early in the business planning cycle, key issues relating to the Bank s Human Resources policies. 4.3 The Committee shall review the annual Staff Compensation and Benefits Programme proposals. 4.4 The Committee shall consider reports by the Bank s Ombudsman, and any reports on issues relating to the health and safety or security of Bank staff. 4.5 The Committee shall consider annual reports from the Chair of the Administrative Tribunal and shall periodically assess the adequacy of the Bank's system of Disciplinary Procedures and Grievances and Appeals. 5. Fulfil specific responsibilities in relation to Governors, the President, Vice Presidents and Directors of the Bank 5.1 The Committee shall review arrangements relating to the Annual Meetings of the Board of Governors. 5.2 The Committee shall review proposals for submission to the Board of Governors concerning the appointment and remuneration of the President. 5.3 The Committee shall review proposals regarding the appointment and remuneration of Vice Presidents and the Chief Evaluator, while respecting the responsibilities of the Audit Committee relating to the Chief Evaluator. 5.4 The Committee shall review administrative and budgetary arrangements relating to Directors Constituency Offices. 6. Oversee policies relating to governance and ethics 6.1 The Committee shall periodically review the Code of Conduct and monitor its implementation. 7. Supervise the Bank s administrative arrangements 7.1 The Committee shall review issues concerning the fixed assets of the Bank, including arrangements concerning its headquarters and Resident Office buildings. 1 Section 7 of the Staff Regulations is attached for information: see Annex 1. 8

7.2 The Committee shall review issues related to Business Continuity Planning and general administrative arrangements. 8. Discharge other responsibilities within its remit 8.1 The Committee shall perform any other activities consistent with the Committee s Terms of Reference and the Bank s governing documents, as the Board or the Committee deems necessary or desirable. 9

D. Terms of Reference of the Financial and Operations Policies Committee The Committee shall assist the Board of Directors in fulfilling its responsibilities in relation to the following: (1) Review and oversee the Bank's financial policies; (2) Monitor the Bank s Treasury operations and reviewing on an annual basis the Bank s Liquidity Policy and forthcoming Borrowing Programme; (3) Review and oversee the Bank s operational policies; (4) Monitor the Bank s strategic portfolio management within the framework of the medium term strategy; (5) Oversee transparency and accountability of the Bank s operations within the framework of the Public Information Policy and the Project Complaint Mechanism; (6) Discharge other responsibilities within its remit. A fundamental part of the Committee s work in relation to policy oversight and monitoring shall be to help identify, in conjunction with and in support of management, forward-looking developments, particularly those that emerge from lessons learned from the Evaluation Department and the Office of the Chief Economist s reports and studies. In fulfilling its responsibilities, the Committee shall have the rights and duties, and follow the principles and guidelines, contained in the provisions set out below. 1. Review and oversee the Bank's financial policies 1.1 The Committee shall review the medium term strategy and its annual updates. 1.2 The Committee shall discuss at various stages in its development cycle, and report to the Board of Directors, on the Capital Resources Review in preparation for its submission to the Board of Governors for their adoption every five years. Similarly, the Committee shall discuss and report to the Board of Directors on Net Income Allocation, in preparation for the annual submission of a proposal to the Board of Governors. 1.3 The Committee shall consider the annual Review of Financial Intermediaries and Loan Syndications and Official Co-financing. 1.4 The Committee shall review on a periodic basis reports on the Bank s private equity operations, Equity Funds and Regional Venture Funds and consider any policy modifications. 1.5 The Committee shall review as required the Bank s financial policies. 10

2. Monitor the Bank s Treasury operations and reviewing on an annual basis the Bank s Liquidity Policy and forthcoming Borrowing Programme 2.1 The Committee shall monitor the Bank s Treasury Operations through bi-annual consideration of the Report on Treasury Activities (reflecting financial performance, market developments, funding experience and client risk management), and as deemed appropriate. 2.2 The Committee shall oversee and provide guidance on the annual review of the Treasury Authority along with the Treasury Guidelines and Risk Management Guidelines encompassed in the Treasury Authority. 2.3 The Committee shall review on an annual basis the Bank s liquidity and borrowing programme. 3. Review and oversee the Bank s operational policies 3.1 The Committee shall review the Bank s sectoral policies and other general policies relating to: operations, including technical cooperation, risk assessment and credit control procedures; project implementation and monitoring procedures; and reporting under agency lines, financial intermediaries, and other similar arrangements. 3.2 The Committee shall consider and provide guidance on key operational initiatives such as: the Bank s SME Strategy, Microfinance Operations, and Early Transition Countries Initiative and the products and instruments they employ, with particular focus on their fields of activity, the monitoring of their results, links with operational activities, and institution-building and co-operation with other IFIs. 3.3 The Committee shall consider and report on annual Country Strategy Updates and review the methodology and format of Country Strategy development as deemed necessary. 3.4 The Committee shall consider under the Early Warning Procedure, exceptions to Bank policies (eg. the Pricing Policy, Procurement Rules and Procedures, Single Obligor Limits, etc.) and other extraordinary cases, in order to inform the Board, at the conceptual stage, of new ideas and approaches before they become fullyfledged projects. 4. Monitor the Bank s strategic portfolio management within the framework of the medium term strategy 4.1 The Committee shall consider and report on the annual Strategic Portfolio Review within the framework of the medium term strategy, with particular regard to trends in various categories of operations, sectoral and regional distributions, cofinancings, risk assessment, and, subsequently the Bank s Provisioning Policy. 11

5. Oversee transparency of the Bank s operations within the framework of the Public Information Policy and the Independent Recourse Mechanism 5.1 The Committee shall conduct triennial reviews of the Public Information Policy and annual reviews of implementation. 5.2 The Committee shall consider issues relating to the Bank s communications policy and initiatives. 5.3 The Committee shall consider the Annual Report on the operations of the Independent Recourse Mechanism prepared by the Chief Compliance Officer. 6. Discharge other responsibilities under its remit. 6.1 The Committee shall perform any other activities consistent with the Committee s Terms of Reference and the Bank s governing documents, as the Board or the Committee deems necessary or desirable. 12

Excerpt from the Staff Regulations Annex 1 Section 7 - Compensation (a) The basic objectives of the Bank's compensation policy shall be to: (i) enable the President to recruit and retain staff members of the highest calibre appropriate to job requirements; (ii) help motivate staff members to perform to the best of their abilities; (iii) provide appropriate levels of compensation; and (b) (iv) achieve these objectives with due regard to cost, bearing in mind the responsibility of the Bank to its members. With these objectives in view, the Board of Directors shall have power to: (i) establish and periodically review the levels of staff compensation and adjust such levels, as appropriate; (ii) institute and maintain incentive programmes and remuneration which permit the Bank to reward staff members according to their performance and contributions to Bank objectives; (iii) establish and maintain programmes to promote the health and well-being of staff members and to provide financial protection and assistance for staff members and their families, including, but not limited to, annual, maternity and sick leave, assistance with medical and hospital expenses and appropriate provisions for retirement; (iv) establish policies and procedures so that the Bank may provide reasonable assistance, depending on the type of recruitment, to staff members who need to relocate to take up their appointments or new assignments, including the payment of travel expenses for staff members and their personal and household effects; and (v) establish policies and procedures concerning such other benefits and forms of remuneration as may be considered desirable to achieve the Bank's purposes and functions. 13